Facts and Figures on Intermediated Trade

Transcription

1 Facts and Figures on Intermediated Trade By BERNARDO S. BLUM, SEBASTIAN CLARO AND IGNATIUS HORSTMANN Over the past several years, trade economists have begun exploring the role that intermediaries play in facilitating trade. Papers by James E. Rauch and Joel Watson (2004), Dimitra Petropoulou (2007) and Pol Antras and Arnaud Costinot (2009) model intermediaries as agents that facilitate matching between sellers/exporters and foreign buyers. These papers examine how improved intermediation (matching) technologies affect trade volumes and the gains from trade. bernardo S. Blum, Sebastian Claro and Ignatius Horstmann (2009) embed a reduced-form matching model, inspired by Robert Townsend (1983), into a heterogeneous rm, trade model and examine how changes in the trading environment affect trade costs, export/import volumes and the extent of trade owing through trade intermediaries. A key modeling challenge for this literature is how to structure matching and intermediation technologies in trading environments. Blum, Claro and Horstmann (2009) provide certain facts for Chile-Colombia trade and use these facts to structure trading technologies. In this paper we provide a broader set of facts on trade intermediaries, using new data sets for Chile and for Chile-Argentina trade. 1 We think that these facts will prove particularly useful for future modeling of trade intermediaries. I. The Data To develop the facts that follow we analyze information from Chilean transaction-level import data be- Blum: Rotman School of Management, University of Toronto, 105 St George street, Toronto ON M5S 3E6, bblum@rotman.utoronto.ca. Claro: Ponti- cia Universidad Catolica de Chile and Central Bank of Chile, Agustinas 1180, Santiago, sclaro@bcentral.cl. Horstmann: Rotman School of Management, University of Toronto, 105 St George street, Toronto ON M5S 3E6, ihorstmann@rotman.utoronto.ca. We thank Trevor Tombe for superb research assistancy and Jim Tybout for helpful comments. Sebastian Claro acknowledges nancial support from Fondecyt Grant Andrew B. Bernard et al. (2010) provides features of US importers, both manufacturers and intermediaries. 1 tween 2004 and For each transaction over this period, the data set provides information on the identity of the importing agent name and ID the 8-digit Harmonized System code of the products imported, the country of procedence, and characteristics of the shipment such as weight, quantity, FOB and CIF values. Critically, for each importer we know its main line of business, as dened by the Chilean Revenue agency (SII). For instance, seven importers have as their main line of business being a wholesaler of machinery for working with textiles and leather, while eighteen other importers are manufacturers of machinery for processing food, beverages, or tobacco. The data set also contains information on the exporting parties with which each Chilean importer transacts in foreign markets. We combine this information with the information on Argentine exporters available in Argentina's customs data. This allows us to match Argentine exporters with their Chilean importers to create a data set with bilateral and global trade information for each exporter/importer pair. We are able to match around 90% of all Argentine exporters to Chile, and around 95% of all Argentina export-chilean import transactions between 2005 and Our matching procedure is less successful in 2004 and This is mainly due to the fact that some transactions that occurred in 2003 are recorded in the rst months of 2004, and some transactions that occurred at the end of 2008 are recorded only in The analysis that follow restrict the sample to On average, 58% of all Chilean imports are done by manufacturers or service providers. Wholesalers account for 35% and retailers for 6% of Chilean imports. Typical manufacturing or service importers buy 11.9 different HS8-classied products and 3.9 different HS2-classied products per year from 3.2 countries. In contrast, importers that are wholesalers buy 18.1 different HS8-classied products and 5.2 different HS2-classied products from 3.6 countries. Retailers buy from fewer countries but buy slightly more products. Chilean manufacturers and service providers buy, on average, from 2.1 Argentine exporters per year, while wholesalers buy from 2.0 and

2 2 PAPERS AND PROCEEDINGS MONTH YEAR retailers from 2.3 exporters. 2 II. Trade and Intermediation Facts A fact that features prominently in Blum, Claro and Horstmann (2009) is that, for trade between Chilean exporters and Colombian importers, there are virtually no cases in which small (worldwide) exporters match with small (worldwide) importers. In addition, small exporters typically sell to one, large Colombian importer. Similar facts are found in the matched Chile-Argentina data. Figure 1 displays information on Argentine rms that export to Chile. It shows that, while almost 50 percent of Argentine rms exporting to Chile are small sellers to Chile sell less than US$30,000 there (the top curve in Figure 1) only about 20 percent are small worldwide exporters: sell less than US$30,000 to Chile and to the world (the middle curve in Figure 1). The bottom curve in Figure 1 reveals that only about 4 percent of all Argentine exporters to Chile are small worldwide exporters who match with small worldwide importers in Chile; that is, roughly 96 percent of all Argentine exporters are in matches involving at least one large trading partner. Although not included here, more than 50 percent of Argentine exporters match with a single Chilean importer and these are the small exporters. 3 Share of Exporters Cutoff (1000 U$) FIGURE 1. EXPORTER - IMPORTER PAIRS 2 An online set of notes available at the authors' websites contains more detailed summary statistics. 3 This information is available in Table 2 of the online notes. We can summarize these results as: FACT 1: Small exporters from Argentina match typically with one large Chilean importer. As discussed in Blum, Claro and Horstmann (2009), if one thinks of trading costs as arising from the cost of either the seller identifying a foreign customer or a customer identifying a foreign seller, these facts suggest that a large trading agent is more easily identied (and matched with) than a small trading agent. In essence, trading / matching costs are declining in the volume of trade in which an agent engages. Small exporters can achieve low match costs by selling through a (larger) intermediary. In addition to structuring the costs of matching and trading, modelers also must structure the technology of intermediation. Two possible intermediation scenarios are: i) intermediaries specialize in a narrow range of products and become large by importing these products from many countries and ii) intermediaries specialize in a small number of countries and becomes large by importing a number of different products from these countries. The former case would imply low cross-country matching costs but high crossproduct matching costs while the latter implies high cross-country matching costs. The nature of the crossproduct matching costs depends on the number of distinct products the intermediary carries. To examine this issue, we look at both the average number of countries from which Chilean intermediaries import and the average number of products imported, as dened by the HS 6-digit classication. Table 1 below provides this information for wholesalers of different sizes, as measured by total worldwide imports. From the top part of Table 1, we see that even wholesalers in the 75th to 90th percentile of import value obtain over 70 percent of that value from 1 country and almost 90 percent from two countries. Ones in the top 1 percent of the distribution, and that import from on average 16 countries, obtain approximately 60 percent of import value from 1 country and 75 percent from two countries. The same is true for retailers (see the online notes). Overwhelmingly, then, the evidence is that, except for the absolute largest ones, intermediaries import from a small number of countries. Virtually all intermediaries, including the largest ones, obtain the vast majority of their imports from one or two countries. In terms of product specialization, the bottom part of Table 1 shows that even the smallest intermediaries

3 VOL. VOL NO. ISSUE FACTS AND FIGURES ON INTERMEDIATED TRADE 3 TABLE 1 WHOLESALE IMPORTER CHARACTERISTICS Wholesalers Percentile Imports Average # Country Share (Thous. $) Countries Top 2nd Top , , , Percentile Imports Average # HS6 Share (Thous. $) HS6 Top 2nd Top , , , import, on average, three HS6 products. Those intermediaries in the 75th to 90th percentile import almost thirty HS6 products on average. They also import almost nine HS2 codes (not shown). The largest intermediaries import almost one hundred products. By this measure, import intermediaries are not very specialized. As with the country data, however, a signicant share of total import value for the typical import intermediary comes from a small number of HS6 codes. Even for the largest wholesalers, carrying over 50 HS6 codes, approximately 60 to 65 percent of import value is accounted for by two HS6 codes. For the largest retailers, two HS6 codes account for between 50 and 60 percent of import value. What we don't see in the data are intermediaries that specialize in small value products that they import from many countries. This pattern suggests that cross-country matching costs are signicant. Instead, we see intermediaries specializing in countries, obtaining the vast majority of their import value from at most 1 or 2 countries. Within this pattern, we also see considerable specialization in products; that is, upon specializing in countries, intermediaries achieve size via one or two large import value HS6 codes. At the same time, these intermediaries carry, in total, a large number of products even the smallest intermediaries carry, on average, two HS2 codes while the largest intermediaries carry many HS codes. To summarize, we have: FACT 2: Import intermediaries specialize in countries, with, on average, 75% to 95% of imports coming from 2 countries. These intermediaries achieve scale by importing a small number of large volume HS6 codes; at the same time, intermediaries import a large total number of HS6 codes. Exploiting the panel nature of the data, we can also follow small intermediaries that grow over time and see how they achieve their growth. In this way we can provide additional evidence regarding specialization and size. The results are provided in Table 2 and are for wholesale intermediaries only. The left-hand column of the top panel of the table indicates that, in 2005, there were 1,176 wholesalers with worldwide imports in the bottom 25 percent of imports for wholesalers in Chile. Subsequent panels in the lefthand column show that, on average, these wholesalers imported 2.9 HS6 products valued at US$7,000 from 1.3 foreign destinations. By 2006, only 621 of these wholesalers continued to import at all (the 555 rms in the 0 row exited importing by 2006). Of these continuing importers, 36 moved from the rst to third quartile of the import value distribution. These 36 rms' import value grew to roughly US$247,000 on average and they imported 18 HS6 codes from 3 countries. For 42 percent of these rms, the country that represented the main source of import value in 2005 is no longer the main source of import value in Two things stand out as noteworthy. First, as above, these 36 rms continued to specialize in a relatively small number of countries, 3.2, but added a signicant number of HS6 codes, 18. Second, there is evidence of these intermediaries searching for high import value countries the number of importing countries rose from 1.3 to 3.2 and 42 percent of wholesalers switch the top import value country. The right-hand column of Table 2 show the transition between 2006 and For the 36 wholesalers that transitioned to the third quartile in 2006, 19 remained in the third quartile. On average, these rms imported from 3.9 countries and 26 percent saw a switch in the top import value country. Five wholesalers transitioned to the top quartile, with import values, on average, of US$416,000. For these wholesalers, on average, the number of countries from which they imported declined to 2 and none of them saw a switch in the top import value country. The contrast here is startlingly. The wholesalers that transitioned to the top quartile found a large import source

4 4 PAPERS AND PROCEEDINGS MONTH YEAR TABLE 2 SMALL IMPORTER TRANSITIONS Quartile Number of Importers , Imports per Importer (US $) 1 7,042 9,306 10, ,309 64, , , , , ,126 Avg. Number of Countries Share Top Country Switchers Avg. Number of HS6 Products there were no top country switches and grew with that source. They pared out a country and added HS6 codes. Those that failed to grow added a country and saw switches in the top import source. They added very few extra HS6 codes. These rms appear to be still searching for a country to generate import value growth. In common parlance, these rms are still shing for a successful country match. These ndings conrm the previous ndings on country specialization. In addition, they suggest that there is a nontrivial amount of cross-country search involved in becoming a large intermediary. We undertook a similar analysis for within country growth using the matched Chile-Argentina data. Here the question is how a Chilean wholesaler achieve import growth from Argentina. We nd a pattern that is similar to the across-country pattern. Specifically, small wholesalers grow initially by matching with more rms and often switching the rm that is the top import source. Wholesalers that fail to achieve additional growth continue to search for an export champion. Those that achieve further growth do so by growing with the same top import source rm. The evidence on these results is in the online notes to this paper. We can summarize these results as: FACT 3: For wholesalers, initial growth in total import value occurs by adding countries and features switches in the highest value import country. Additional growth occurs by pruning countries and growing with the previous highest value import country. In both instances, wholesaler growth features signicant increases in the number of HS6 codes. Initial growth in import value from Argentina occurs by adding rm matches and features signicant amounts of switches in the highest value export rm. Additional growth occurs by growing with the previous highest value export rm. Firms that fail to grow continue to see signicant amounts of switches in the highest value export rm. Finally, the above facts all suggest that, if any intermediary either imports from small exporting countries or imports products having small export values, it will be the large intermediaries. To test this hypothesis, we rst identify, for each country from which any Chilean rm imports, the smallest Chilean rm, based on worldwide imports, that imports from this country. We then plot this smallest import rm size, in logs, against total import value, also in logs, from the paired country. This plot is reported in Figure 2. We see that the countries with the smallest import values are paired with the large import rms. Regression analysis reported in the online notes to this paper con- rms this conclusion. Both the plot and the regression results include all importing rms, intermediaries and manufacturers. As a result, we cannot conclude from the above that intermediaries, in fact, are importing from the small countries. Additional analysis reported in the online notes shows that, in general, intermediaries account for a signicant share of the imports from small countries and that this share declines as the value of imports from the country increase. Together with the evidence in Figure 2, this conrms that, for small (to Chile) export countries, imports are undertaken by large rms and that a signicant fraction of these rms are import intermediaries. We perform a similar analysis for HS6 codes. Now, for each HS6 product imported into Chile, we iden-

5 VOL. VOL NO. ISSUE FACTS AND FIGURES ON INTERMEDIATED TRADE 5 is true for products (at the HS6 level) that sell the least to Chile. FIGURE 2. IMPORTER SIZE - COUNTRY IMPORT VALUES tify the smallest Chilean rm that imports this product. We then plot, for each HS6 product, the size of the smallest import rm against the value of imports of the paired product. This plot is reported in Figure 3. 4 Again we see that the products having the smallest import values to Chile are imported by very large rms. Again, the analysis in the online notes shows that a signicant fraction of these rms are intermediaries. In essence, we have that the large intermediaries play a signicant role in facilitating trade in low volume products and from low volume countries. This fact is important. It suggests that growth in the intermediation sector gives consumers access to products and countries that they would otherwise not be able to access. In this sense, a large intermediation sector is crucial if consumers are to have access to niche foreign products. Looked at the other way, a large intermediation sector facilitates trade for small traders, small products and small exporting countries. III. Conclusion We nd that rms with small amounts of worldwide exports almost invariably match with an importer that is a large world wide importer. This importer may be an intermediary or a manufacturer. Focussing on import intermediaries, we nd that intermediaries become large by matching with a few large sellers located in one or two countries and buying a few large import products. At the same time, having achieved signicant size, the large intermediaries are the source of imports for both small import value countries and small import value products. REFERENCES FIGURE 3. IMPORTER SIZE - HS6 IMPORT VALUES Together, these results give us our nal fact. FACT 4: The countries that sell the least value to Chile are imported by large Chilean rms, a signicant fraction of which are intermediaries. The same Antras, Pol, and Arnaud Costinot Intermediated Trade. Manuscrip. Bernard, Andrew, J Bradford Jensen, Stephen Redding, and Peter Schott Wholesalers and Retailers in U.S. Trade. Manuscript. Blum, Bernardo S., Sebastian Claro, and Ignatius Horstmann Intermediation and the Nature of Trade Costs: Theory and Evidence. Manuscript. Petropoulou, Dimitra Information Costs, Networks and Intermediation in International Trade. Oxford Working Papers. Rauch, James E. and Joel Watson Network Intermediaries in International Trade. Journal of Economics and Management Strategy, 13: Townsend, Robert Theories of Intermediated Structures. Carnegie-Rochester Conference Series on Public Policy, 18: For purposes of the plot, HS6 import values are rounded to one signicant digit.